Did a long call w someone on this today. It’s absolutely deflationary, & no way out, he’s right. The demographics & debt demand it, not just in US but also esp in China, too. They can’t rescue world demand like they did after 08. But let’s look few steps ahead...
No one thinks Fed will allow a massive, uncontrolled deleveraging to occur. That collapse in credit & demand is a certain & worldwide depression. Made a lot worse by a raging strong USD shortage that bankrupts countries around the world w their USD debts. So Fed has to print.
And they have, just exceeding $5T on their balance sheet this week. I & others think they go to $15T+ by the time this is over. They have to paper over 50 years of capital destruction, yet again. Tab keeps getting bigger.
Can they? Yes. Will world flee the USD? No. USD monopoly still insurmountable, w too much commerce, our rule of law, military, & willingness to keep printing to finance world flows. Could change, but not obvious yet how it might. (Last time it did, also depression, took a war.)
Now, everyone then says it’s hyperinflationary. Not really. We’ve had trillions added to Fed B/S past decade and it only really drove assets higher, not real goods. Remember, we have a massive deflationary problem: businesses destroyed, consumer thrashed, savings wiped out...
...demographics (greying), too much debt, etc. We have a demand problem bc on top of crash & virus, we’ve simply zombied our economy w too much debt invested in underproductive crap: we’ve destroyed capital.
So this deflation problem isn’t simply fixed just bc of $ printing.
So this deflation problem isn’t simply fixed just bc of $ printing.
In order for it to drive new demand, a healthy *monetary process* has to be in place. That is, $ get to real economy thru credit creation. This would happen if ppl borrow, invest, purchase etc. But they won’t. See above; shit’s bad, that’s precisely what’s broken.
No more debt please, & I won’t spend, thank you. And yes, I’ll save what little I earn. IOW, ppl aren’t stupid, they go into a hunker down mindset. It’s a deflationary mindset. So there’s no monetary process to drive demand or get the $ to people. 0% APRs & cheap mortgages...
...don’t cut it when we’ve had a decade of low rates already. That’s what we mean when we say the Fed’s out of ammo, or pushing on a string.
So how can we get inflation up to combat deflation? Only one way here: if monetary channel is broken, we have to use fiscal channel.
So how can we get inflation up to combat deflation? Only one way here: if monetary channel is broken, we have to use fiscal channel.
This means basically two things: first, govt becomes primary economic customer, thru trillion dollar infrastructure efforts, green new deals, bigger military, nationalized healthcare, whatever pushes $ into economy.
Second, govt just gives $ to people directly. Could be UBI, but in all cases it’s helicopter money, literally govt raining $ on the population to try to get economic flows running again & combat deflation. This can work: inflation happens when more money chases same real goods.
Helicopter $ does this, bc now ppl have a flow of $ to spend, and prices stop dropping & start to stabilize, then rise. (Esp, virus = supply shock, too)
But main pt of this oversimplified econ thread is that hyperinflation has a bunch of hurdles to cross before it’s possible.
But main pt of this oversimplified econ thread is that hyperinflation has a bunch of hurdles to cross before it’s possible.
The biggest is political. And while I think politicians go this route, it will take some time. (So those thinking gold moonshots, not yet it doesn’t. It’s got a deflationary collapse to get through first.)
I’ll end w comment that what we should be thinking about, if we’re going to spend trillions on fiscal stimulus, how can we best do so to meet the metacrisis? In that regard, a once-in-century opportunity to reset the whole game for all future generations.
If politics is really fight about who gets what, we’re going through an incredible realign where costs simply won’t matter in DC. What will matter is what does it get spent on & invested in.
Deep changes afoot, we’re truly crossing the rubicon as we speak...
Deep changes afoot, we’re truly crossing the rubicon as we speak...
